♪ awesome internet that's super whoa... ♪ ♪ everything is awesome xfinity. the future of awesome. francine: party like it's 1999. we take stock of the world economy. stocks over yields. the doe purchases crush yields. heads to its biggest weekly advance. this is "bloomberg surveillance." tom keene is in new york. we have a most interesting day.

we have to look what equities did yesterday in the united states. germany much better than expected. italy, much less than expected. tom: there is a lot of economic data coming up. i look at this friday as a reset onto jackson hole. we have incredibly smart guest with us today. what i like about it is this is the week where we have moved on from brexit. i don't know what we have moved onto, but we left june 23 behind. francine: i just had a 30-minute special on brexit, so i haven't moved on, but i know markets have. let's get straight to the bloomberg first word news. taylor: we will move on to russia. russia is ratcheting up the threat of retaliation against ukraine.

ukraine put its troops near the region on alert and the ukrainian president says russia is looking for an excuse for further military threats. froma seized crimea ukraine in 2014. a series of bomb attacks have impacted thailand. the government does not know who is behind the attacks. hillary clinton says it is a myth that donald trump is on the side of the little guy. she urged voters not to believe that. in a speech in michigan, she laid out her economic plan and ripped trump. linton: she called for a -- he called for a loophole that would allow him to pay less than half the current companies. half his

he would pay a lower rate than met aliens of middle-class families -- millions of middle-class families. taylor: at the summer olympics, michael phelps made history. he won the 200 meter individual medley. bilesnastics, simone lived up to several years of expectations and won the gold for all around. aly raisman won the silver. the u.s. is on top in the medal count. china is second, japan is third. i'm taylor riggs, this is bloomberg. tom: thanks so much. equities, currencies, bonds, commodities right now.

, as francine mentioned. a trifecta of equity performance yesterday. onto the next screen. , 11.59. i thought it would be lower, but there it is. i'm watching sterling in the negative rate value continues. -0.10. francine, what do you have? francine: overall, this is what i have. stocks are taking a little bit of a pause. pound below 1.30. it is a little bit of a friday fun. it is actually not that much fun.

that is the currency i picked. surveillance" is such a nerd-fest. francine: i take it as a compliment. that is awesome. we get evidence that negative rates will be passed on. bankis the name of the that is having you pay to give them your money. how do you pronounce that? raiffeisen gmund. we will talk to jet black in the hour.

francine: this is my bloomberg terminal. this is consumer confidence. morgane line is the roy china consumer confidence total. what this highlights is a contrast between official and incidental data. i found a chart for it. let's welcome stephen gallo. we have about a million ways we could look at today. i will start with china. that the juanned has been steady for little bit, but it is fictitious? we see the trade weighted rnb. would we have in the backdrop

for china is an increasing number of her per default. more balance sheet deleveraging for banks. we like rnb lower. francine: we will talk about china a little bit more later on. we have so much central-bank action. if you look at dollar, are you expecting if it hike this year? stephen: fed hike in december, dollar strength at the end of the year. for the time being, we think is going told grab weigh on the broad belly of the dollar, so there will be very limited if any dollar strength. positioning in the dollar is very light. the dollar can't fall very sharply. september and october, we're worried about. rate hikes for the fed won't get

priced in significantly in september and october. tom: i want to take a friday broader view. this is a theme for surveillance. the battle for inflation and disinflation. is your world of foreign inflation a struggle? is that what we are doing? stephen: i think reflation would be something central banks are happy with. particularly the type that affects asset prices. britain is going to get some fairly significant things passed through. debt burdens in britain are relatively high. whether or not it will last is a different story.

i think you are on target. i think reflation is was central banks want. inflatesstimulus also asset prices which leads to other complications. the world of macro is not over yet. i love how you say that the duration of the effort makes it evermore complex. francine mentioned stagnant italian gdp. i think we forget what stagnant is when you talk about italy. this is real gdp with a four year moving average. this is the level of gdp. italy has never recovered. back to roughly 2002. 14 years ago, the level of italian gdp.

chart, the worst single worst chart in the g7. chart is the worst when you look at italian unemployment. it makes you realize how many people lose their jobs. you look at whether matteo renzi can even stay in charge. we have eurozone, not bad figures, germany powering ahead, italy falling behind. stephen: and it is structural, italyularly in italy area is a very serious problem for the eurozone. burden is-sector debt something that i don't think the italian economy can grow itself out of. the issue is not only one for .he ecb

i think the scope and scale is really important. oil.about the level of minsky -- adam sky on the state of supply and demand. from london and new york, this is bloomberg. ♪

francine: live pictures from hong kong. we are talking china, we are talking some of the credit that

we are seeing. i'm francine lacqua. tom keene is in new york. growth grewermany, less than predicted. it is a signal that europe's largest economy may be strong enough to handle the u.k.'s decision to leave the eu. italy's economy unexpectedly stalled. the jobless rate is above 11%. jpmorgan as liquidating a fund focused on japan after significant redemption. dipped to about $17 million last week. china's recent economic stability faltered in july. factory outlook, retail sales fell last month.

that is your bloomberg business flash. francine: taylor was just talking about china credit growth. what does that actually tell us? that the authorities are on top of it or that there is a problem from lending -- with lending? >> that is the big take away from today's daily should data. -- deluge of data. bait --there has been a debate going on for some time .arning of the deadly risks , they want tome

hit the 6.5 minimum growth target. we saw the industrial output slowdown. we know that the manufacturing sector continues to be under pressure. francine: what can you make of what we heard this week? we understand what the ultimate game for the chinese authority is. is there a handle on this? i think it tells us that they are concerned and worried , but theydebt story cannot really step back from a similar side of things. we are seeing a reality check on the stabilization narrative. factories are softer. private sector is not spending money.

as long as the private sector is not spending money, they are going to keep tipping cash in. they may want to think they have a handle on things. mentioned the ultimate dilemma for the chinese leadership. moving people from the rural landscape to the urban landscape . does that dilemma still exist? enda: it is one of the biggest a lummis for them. another biggest dilemma is making sure that they have jobs and rising incomes for them. there are a lot of dissolution migrants in china and a lot are moving back in 2015, we saw a big uptick in social unrest at factories around the country. the great urban dream in china is being challenged. tom: we've got to do a whole mother section on that. do that. to

that is brilliant. the great urban dream. brilliant there. stephen gallo with us this morning. i look at e.m. and we are going to talk about this later. is their strength in e.m. or are they tilting toward their own kind of recession? stephen: i think from a flows perspective and given the underweight position that many investors had after q1 in e.m. that the dilemmas faced by the developed world basically have triggered strength in e.m. we expect that to continue in august. it may fade during risk off, but we don't expect extreme moves lower.

francine, i think this is one of the key issues from august into september that we are debating on "surveillance." it is a real mystery. francine: again, there are so many questions left unanswered on china that we seem to have forgotten about because we have not seen the volatility we have seen in january. what is your favorite play? how do you play into renminbi? stephen: china. implied volatilities are cheap currently. it is relatively cheap to put that on at the moment. in the very short run, the dollar is not poised for any particular strength. that is a good way to play. tom: stephen gallo with us. in our next hour, what an interesting hour. gideon rose, david goldman will

join us. what you want to know. the dynamics of global disinflation and deflation. really looking forward to that. this is bloomberg. ♪

francine: welcome back. i'm francine lacqua in london. tom keene is in new york. this is what i picked up from my morning must listen. i spoke to the former italian prime minister and we talked about brexit.

i asked him about his take on the italian banking system. thathave the impression italy's banking system is a problem, but i also have the impression that it is the anglo-saxon world, that that problem is being slightly exaggerated maybe also to inadvertently seek to divert the attention from brexit and other major problems. gallo.e: stephen when you speak to italian politicians, they say it is blown out of proportion. if you speak to investors, especially anglo-saxons, the word about italian banks, could italian banks be a bigger concern than brexit. it creates political

headwinds and tension. from the perspective of the euro , the contagion risks, the balancing and relet urging over the years. cause said that, it could the edb to ease policy more. largeste of europe's economies. francine: it is the first time i've seen german banks pack on negative rates. stephen: it is not as big of a negative impact on the euro going forward, but our friend friends -- preference is taking advantage of it to sell.

headwinds and so forth. francine: thank you so much. we have plenty more to talk about was stephen gallo. is it time to invest in emerging markets? we speak to the head of research. from london, from new york, this is bloomberg, where equities are pretty much flat. i want to draw your attention to some of the currencies. if you look at kroner, it is being boosted. ever look at some of -- have a look at some of the crude numbers. pound is below 1.30. ♪

tom: good morning, everyone. "bloomberg surveillance." it is a friday, it is august. there is a lot of interesting stuff going on. here is taylor.

taylor: the fbi has high confidence that the russian government act the democratic party -- hacked the democratic party. thatindings underscore russia has its eyes on the u.s. election. they believe hackers also act billionaire -- hacked george soros. yesterday, 14 turkish lenders had cut their rates. the president thinks they should be about 9%. china may put more pressure on south korea not to deploy a u.s. missile defense system. limits on south korean exports to china are being considered. in canada, authorities confirmed a man who planned a terror

attack in the names of islamic state died in a confrontation with police. they got a warning from the fbi and went to the man's home in ontario. the man detonated a bomb that issued -- injured a taxi driver and he may have died from the blast, as well. the national oceanic and atmospheric administration said the could be eight hurricanes before the season ends. global news 24 hours per day. i'm taylor riggs. this is bloomberg. francine? francine: thank you so much. emerging-market stocks headed for a fifth the weekly advance. fed. really all about the jan dane.ome

we are also back with stephen gallo. jan, as long as the fed does not tighten, they are going higher. if the fed surprises and hikes, are we going to see a temper tantrum? >> know, we are not. emerging-market currencies were up versus the dollar. one is relative and absolute valuation, yields were higher than when the fed had interest rate at 5.38%. that is set to continue for the next five years.

people like to have their money invested in current these that go up. francine: this is based on fundamentals or just week as they need to find somewhere to put their money because they are not getting any retold -- returns and yields? it is a strong fundamentals story. the technical position. everybody and his dog as left the asset class since 2013. dips.ensed by on you have very little downside. you have not seen the institutional money coming back in. i would argue there is very little downside and potentially a lot of upside. tom: within the apocalypse or a greatm, and you have article about the optimism online america, we have seen , we -- about latin america

have seen this and we have a chart. i stole this from jan. different than the previous one. i think what is really key is that the dollar has become a problem for the u.s. economy. that began to happen around the third quarter last year. the u.s. does not want a stronger dollar. the chinese do not want one. nobody wants a stronger dollar. once the dollar stabilizes, people start looking at relative .ield in latin america it is even more extreme. tell me about the gauchos.

give me something i can be a yield hog on today? emerging markets were heavily beaten up by the taper tantrum. that led to an enormous amount -- lating on african equities are 36% this year. valuations are still well below in the developed markets. it is a very compelling story. within that is the structural shift. korea is and that fan of capitalism in asia. where is the fault of capitalism among the gauchos? jan: the three largest latin american countries, argentina,

brazil, venezuela, are in the process of transitioning or will transition to much more technocratic reform minded governments. in argentina, the new administration has done more reforms in the first six months of this year than in the past 10 years. brazil, we are about to see a very significant constitutional reform that would limit public spending. it is likely to have a change of government in venezuela in the next 12 months which should offer a more investor friendly environment. most populist governments being replaced by orthodox and reform friendly ones. you play the oil card which is related to emerging-market and you go into something. the kroner is being boosted by the gain in oil. stephen: i broadly agree with

what jan said. as we move into september and we see pitfalls, particularly for the developed world, i think what you probably need to do now is look for opportunities to sell the more ponderable -- vuln erable currencies. i do believe that is the fed moves forward, there will be diminishing marginal impact. francine: do you like norwegian krone? stephen: no. francine: it is such an oil play. stephen: we have the average oil price moving up slightly. we don't have a bearish

forecast, but we don't think it is going to recover very much ground. there is persistent competitiveness problems. external adjustment is handled in norway. there is a new normal for oil in the this will result bank staying very loose for a very long time. unless the fed were to reverse policy altogether. how do you look at oil? oil isview it that likely to be between $40 and $50. saudi's are not going to cut back if the iranians are producing.

that should keep a stable around current levels. tom: what do you do with u.s. equity prices? how does an em guy like you perceive the nirvana of the blue chips? jan: i think you can do better than chasing the consensus trade for the last four or five years. the valuations are now so stretched compared to fundamentals that it is running out of steam. at every moment in trade is that people are looking for value. this is the equivalent of 1999 and the end of the dot com bubble. instead of buying that company with no income, i think i'm just going to buy utilities.

that might just turn out to be the best trade you've ever done. tom: brilliant. greatly appreciated. .e will continue with mr. gallo and our next hour, he is out with a brand-new magazine. affairs"se of "foreign looks at the future of the executive branch of the united states. this is bloomberg. ♪

francine: i'm francine lacqua in london. there are loads of asset classes we are looking at.

-- negative rates have arrived in the real world. a german conference of saving it will start charging retail customers to hold their cash. bloomberg'sd by economic reporter. how big a deal is this for the savers? >> good morning. it is not the end of the world, but in the little savings bank at the foot of the else -- alps it is a significant enough thing that the taboo was broken. namely, you don't pass on negative rates to consumers. francine: negative rates filtering into the real world. thatis just the first bank we are going to see many more to

follow? on,: the longer this goes the more chances we've got of seeing banks saying, you know what, i don't see why we shouldn't past this on to the customers. toy are not really going take their money out in cash and put it under the mattress. tom: i think this story is incredibly important for the delete ofrmany -- the germany -- the elite of germany. this is chronic. the red circle is when the yields when negative. now you are leaving out the 10 year yield down to a negative rate. if there are more little itty --ty -- jeff, help me out how did i do? i nailed it. do? are the elite going to

if you have another 200 banks to do this? it is a serious problem over the long-term. they're having to take increasingly extreme measures. monetary policy with the euro. tom: when it is additive and , is it now fix it or are they terrified about 2017? are probably they looking down the barrel of the next few years and not knowing where the earnings are going to come from. bankis not just one small taking the decision.

for the system as a whole, it is too early to say, but the ramifications could be serious. francine: does this shed light on a problem for the banks? stephen: it shows that the banks are coping with a profitability crisis. it is not a systemic balance sheet crisis, it is a profitability crisis. germany finds itself in a bit of a dilemma. one of the reasons why domestic interest rates fall and germany is because the level of access savings is so high. when you cannot encourage private sector investment, this is going to drive domestic interest rates lower.

ecb policy should not be the target of criticism. it is responding to domestic fundamentals. the eurozone has an external surplus. it has a savings surplus. downtrendve been on a and the ecb has responded with policy. francine: this goes back to negative rates that jeff was talking about. this is the swiss yield curve. even the four-year is below zero. everything in switzerland is negative. stephen: right. this is just a magnified example of what the eurozone has just described. looking at the balance of payments, they can recycle the current account.

it also boosts the current account surplus. they are beset with persistent trade weighted swiss francs. if you go back over the first half, one of the only reasons they had an outflow would be weakening the frank. question, just. how far up the banking food chain does this go? does it get up to the largest banks? yet. we don't know that these guys are tearing their hair out in a very competitive banking system. there is one option and they will be weighing up the pros and cons of doing this carefully. tom: thanks so much, jeff.

was black and julia hirsch a must, must, must read. i will put this out on social when i get a chance. he wrote the single best note on american productivity this week. of morgan stanley. brilliant on the dynamics and disappointment of american productivity. we will do that later on radio. ♪

tom: it is francine lacqua's london. it is a gorgeous friday in london. it looks like a disney set. the buildings drive me nuts, francine. francine: i quite like it. the names are quite disney-esq ue. tom: what are the names? francine: do you like the cheese grater? it looks like a cheese grater. they are right on the money. tom: let's get to the bloomberg business flash. mayer inn 88% drop for

second-quarter profits. options forrategic maersk. olympics tv ratings are falling short of expectations. nbc won't say what size audience did promised -- audience of promised advertisers. the primetime audience is from the 2012 olympics. francine. francine: thank you so much. this is a picture for sterling below 1.30. someone that we have regularly , people are remaining longer dollar pound. gallo back with stephen to have his thoughts and insights. what does sterling do from here?

stephen: our view is 1.27. we are not in the extreme bearish camp, but we do see downside risks from the politics and the macro economic climate. we have always said that boe action would be enough to support u.k. asset prices. what you have, for example, in the eurozone, you had a credit trade, as well as a week macro economic trade, as well as a political trade driving the euro lower. you don't have a credit trade for sterling, as long as the be a being preempted and proactive. u.k. asset prices are being supported by continued flow of credit or at least credit won't contract as much as it would have in an alternative scenario.

we think it is a supportive factor for his -- the pound. tom: sterling gets to the 1.27 level. come up and we rollover. i spoke to a bunch of college kids last night and i tried to explain to them the optimism. wells fargo bought an office building right near our new world headquarters. this is just below mansion house on the river thames. be?e is the flow going to doesn't the money have to come in to buy up united kingdom golf courses? [laughter] stephen: i think were you are headed is the right direction. relative to balance of payments, long run ppp models. the pound has given signs of overvaluation can instantly.

-- consistently. when you combine that with the fact that most of the current account deficit has been driven by the balance on primary income deficit, a weaker pound is very significant and it should help to write some of that external imbalance. i would not rule out more weakness. 1.20 two 1.25 is a very disaster situation for brexit and the macro economy in the u.k., which we are not sure of. tom: brilliant. stephen gallo, thank you so much. we will continue in our next hour. gideon rose of "foreign affairs." david goldman. good morning. ♪

tom: italy stagnates, and in

this global slowdown, can -- gideonsave the rose of foreign affairs magazine. can governments reflate? persistent disinflation and deflation. secretary clinton replies to mr. trump on economics. both seek middle-class votes. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. friday, august 12. francine lacqua in london. i'm tom keene in new york. italy, stagnant -- 0.0. francine: if you look at the eurozone as a whole, it is not as bad. it could be much better than expected. that is something -- that if matteo renzi does not stay in the job as prime minister. mario draghi has to do with europe. tom: we will talk with david

goldman about that experiment within the hour. but get to our "first word news" with taylor riggs. taylor: russia is ratcheting up its threat of retaliation against ukraine. moscow warns that the deaths of two serviceman will not go equence.cons poroshenko says russia is looking for any excuse to further military threats. russia seized crimea from ukraine in 2014. bombs exploded in two reservoir counts, killing at least four people and wounding 20. foreign tourists were among the hurt. the thai government does not know who was behind the attack. hillary clinton says it is a myth that donald trump is really on the side of the little guy. speech in michigan, clinton laid out her economic plan and ripped trump.

mrs. clinton: in his speech on monday, he called for a new tax loophole. let's call it the trump loophole, the cousin will allow him to pay less than half the current tax rate on income for many of his companies. thanuld pay a lower rate millions of middle-class families. clinton pledged to invest more in infrastructure, boost the minimum wage, and stop any trade bill that kills jobs. michael phelps made history. 200-meter, becoming the first to win the same event in four straight olympics. raisman won the cellular -- the silver medal. simone biles won gold.

global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom? tom: we have killer guests in this hour. equities, bonds, currencies, commodities, not much to show there. on to the next screen. i thought ithere would be, but getting there, 11.57. -.09 today.0-year, francine: overall global stocks are heading for a pretty good week, the biggest week in a month. i want to draw your attention to the norwegian krone. ,eading for a pretty good week the biggest event since april, trading your $44 per barrel, speculation that some of the producers worked together to stabilize prices. let me bring you to my bloomberg terminal. i wanted to look at the value

that we saw in the u.k. stocks. come over here. this is what we are seeing. it is basically a spread. this is what we are trying to figure out. it is company's returning 3.8% dividends. it is an all-time high. the spread between what dividends in the share price gives you compared to the 10 year gilt, it is that the highest. the bank of england stimulus is crushing bond yields but pushing up equities. tom: that is good. i want to look at china as well. we showed this chart earlier this week. it is a nice lead-in to david goldman. this is the piggy bank in china. endvector that would never ended in 2010. andolled over, we are flat, the extrapolation there is where the piggy bank would have been today. david goldman has counted every renminbi in the piggy bank, or

for that matter, every dollar in the piggy bank. ,e is iconic at bank of america literally moved markets by himself. he is a former reorient group and asian times columns. at theen you look piggyback chart, what does that say about pending disinflation and deflation in the world? david: well, the china piggy thatis largely as a result people know r&b has to go down as well as up. you had a massive rebalancing of chinese companies and liabilities. it was a -- they used to borrow -- what they realized that once they realized it declined of it, they reversed it so you had a big dropping chinese company dollar debt and a drop in reserves.

it does not really reflect chinese economic confidence. , david -- andty you were way out front on this -- is the decline in aggregate trade. recordersrl weinberg ahead of everybody else. how urgent is the decline in world trade? david: as you indicate, this is the elephant in the parlor. with world trade actually negative year on year, as of the second quarter, we are at the point we are very close to global recession. that makes china's problems much more difficult than they ought to be. china is trying to obviously move from the polluting, factory-based, old economy to a high-tech, new economy. their export sector is in very poor shape. china, however, is doing reasonably well. i keep reading bloomberg stories

talking about a chinese financial crisis. i do not see it that way. you have state-owned banks that oh money to the state. money to the state. but, david, we saw some figures and we have written a lot of stories saying that china is stabilizing. but today we have china credit growth slowed to a two-year low on the debt curve concern. how are the chinese authorities seeing this? are they suggesting that we are concerned that they are concerned about swelling financial risks? david: as an economist, i would argue china's real rates are too high. , judgingse authorities from the chinese press, are saying the exact opposite. they want to keep real rates

high because they want to keep the feet to the fire of the old industries that want to force reforms, that want to force a shift out of employment in the old smokestack industries into newer industries. it is mainly a political gesture on the part of the chinese authorities. they are not giving old industries any breathing room, or any way into the labor force. francine: this seems like a policy parity. is that fair? stabilizing, they want to focus on curbing financial risk. david: absolutely. financial risk is really political risk. the issue is, how much rope do you give the old industries by continuing to finance them? you know they are not going to pay it back in any case. but that is just the liability to the state itself. politically, they have to rely

on unemployment in certain regions. , as youas growth indicate, stays in the 6% range, they will keep credit high. if they fall below it, they will get some rope. tom: tell me about the asian tigers, about the adjacency factor they have buttressed up buttressed up and against all that is going on in japan. what does singapore do? what does malaysia do? what does taiwan do? david: they have to wait. market. their biggest as long as world trade or mains week and the united states remains weak, they are going to do their best. tom: do they affect the currency war? david: china is externally cautious. the really risk -- the real risk in the currency war is that china devalues quickly, but they

will not. they have done stealth depreciation's that have that they have done stealth depreciation that the market has taken very well. central banks have learned that it is in none of their interests to make any precipitous moves. us: david goldman is with through the hour. as well, gideon rose will be here. he is a foreign affairs magazine that he is at "foreign affairs" magazine. rose with a smart article from the vice president, the new edition of "foreign affairs," and it is in readable font. this is bloomberg. ♪

tom keene is in new

york, all wild up about today. i am francine lacqua in london. wasor: in germany, growth less than predicted in the second quarter. in thegdp rose .4% second quarter of the year. it is a sign that the economy may be strong enough for the decision to leave the eu. the jobless rate is above 11%. casino billionaire steve when will only get 150 gambling tables for his new gambling -- his new resort in macau. macau has proposed a 3% tax on tables. that is your bloomberg business flash. tom: thanks so much. "ast night, "time

is the smartere article. "time" did it a job with the meltdown angle. david goldman is with us. gideon rose now joins us. are you editor, editor in chief? gideon: i am editor. tom: he is editor. president, the vice joe biden taking a victory lap. that is what he is good at. here is the vice president on building on our success. tom: all of us have to look at what is going to happen next. let's start with mr. trump's foreign policy. people like nick burns and

others, like a herd, are moving over to secretary clinton. do you detect a foreign policy from mr. trump? gideon: it is very hard to say because we do not know how seriously he takes the things that come out of his mouth. you could make a case that if he does what he said he is going to do in a variety of areas, it would be the greatest shock to the international system in american foreign policy in modern history. you could also make the case that he says the exact opposite of everything, and therefore you have no idea what he is going to or january 5. 9 it is essentially a wildcard. when you are getting with trump is all bets are off and you are , which things he says he is actually going to do. tom: we think we all know secretary clinton, but is she going to be a hub and spoke

president? do you have a clinton foreign-policy in mind yet? gideon: the clinton foreign-policy will be a more robust, vociferous version of obama foreign policy. there will not be a lot of substantive change. unlike obama, who clearly saw himself as presiding over a pullback from overextension, there is a general sense in the clinton camp that the pullback has gone far enough, and that the next president should hold the line, not withdraw dramatically further, and maybe even try to reinvigorate the global liberal order that exists. i think you will see a little more positive talk with allies, a little more active defense of the existing institutions and some planning for the next chapter in the obama foreign-policy. having clear the deck, what do you do now? francine: what is foreign policy?

do people have to like each other to do good foreign-policy, to have a foreign-policy that you can name foreign-policy? if donald trump becomes president and he insults another leader, either on purpose or by mistake, and you still talk about foreign-policy? gideon: i think you can, although there are certainly some personalized leaderships around the world that may be as sensitive as he is, and therefore he might slight and annoyed and individual leader who has complete control. by and large, process of foreign-policy involves things, more than just the personal peak emotions of the leadership. whattually do not know donald trump's policies are going to be. if you slap your medic tariffs on china, it would not be a matter of annoying the chinese, it would be a matter of disrupting global trade. francine: will we find out before the election? gideon: no.

this has been the most policy-free election cycle i have seen. there has been no discussion of actual policy is occurring. you will not know anything until late november. tom: david goldman, you have a very interesting political tilt , synthesized into your finance and investment as well. gideon rose and the team at cfr and foreign affairs can write about the south china sea. most of us do not know where it is on the map, do we? our ignorance of your asia is remarkable. the goal of the next president to david goldman's southern asia? david: the biggest problem is the south -- in the south china china can sink american aircraft carriers. we do not want to find out how good russian air force -- russian air defenses are.

we might start losing f-22's. the most radical shift in military affairs away from the united states in the last eight years in my lifetime, and the most important thing in foreign-policy is to restore american technological preeminence. tom: what did you learn about pentagon readiness, based on what you hear from dr. goldman? gideon: essentially the lead package of the new issue is about defense policy. donald rumsfeld aimlessly said you go to war with the army you have, not the army you might want to have. he was correct. the decisions we are making without -- we are making about what kinds of forces we will purchase now is going to affect what can be done down the road. the biggest thing that the experts like marty dempsey, david petraeus were telling us

-- the biggest obstacle to that is congress. sequestration and budgeting. the uncertainty of the budgeting environment in washington and the political restrictions that congress has on the pentagon are the single biggest challenge for the united states military going forward. david: i think the biggest obstacle is that we are spending one point $5 trillion on a turkey system called the f 135. that goes back to lobbying. tom: it is a great issue. we are going to continue the magic, a smart discussion on oil. we are thrilled to bring in adamson minsky -- adam sin minsky. ♪

tom: good morning, everyone. adam sieminski with us in a bit on oil. gideon rose on foreign affairs. david goldman with us. let's go to david goldman on a single digit world. mohamed el-erian writing a brilliant essay on our lack of retirement system. he goes, jack, jack, the titanic of enterprise set on a course for disaster. this is a brilliant essay,

david, on how even the knowledge bases of retirement, given the new single-digit return. david: translated into our own portfolios, it means that any stock that looks vaguely like a bond is going to get an idiotically high bid. people want stable cash flows, and they cannot -- tom: can we see equities at -- david: there are some markets that would still have somewhere to go. for example, german market companies, the big industrial chemical companies, very stable earnings machines, paying dividend yields, some of the particular,es in consumer discretionary, consumer staples come a things like that. tom: what is david goldman's new actuarial assumption? if you tell me it is below 5%, i am going to cry. david: more like 3%.

i'm sorry, tom. tom: 3%? none of us are going to retire. actualif you look at the -- the solow model says the rate of profit investment should be the rate of greedy -- should be the rate of gdp growth. change inradical economic structure, we cannot get out of that trap. tom: brilliant. read the mohamed el-erian piece. oil, daniel yergin later on radio. bonus round first. adam sieminski of the eia. this is bloomberg. ♪

francine: this is "bloomberg surveillance." you are looking at live pictures of the city of london. that is the new bloomberg building, where we will have our new studio.

i cannot wait to come over and see it. on the right, we have a couple of the main landmarks that make up the city of london. i am francine lacqua in london. tom keene is in new york. we had this incredible record high, european equities taking stocks practically flat. $43. oil is gaining at krone leading gains of currencies of crude exporting nations. has highhe sci confidence that the russian government has hacked democratic party groups here. the agency believes that the russians have spied on the u.s. presidential election. security experts leave the same russian hackers also hacked george soros and a top nato general. china may put more pressure on

south korea not to deploy a missile defense system. among the measures being considered are limits on south korean exports to china. may suspend some investments. there was a warning from the fbi and they went to mn's home in ontario. the suspect detonated a bomb that injured a taxi driver and may have died from these put himself. forecasters warned this will be the most active hurricane season in the atlantic ocean since 2012. the national oceanic atmospheric administration says there could be as many as eight hurricanes before the season ends. half of those could have wind of 111 miles per hour. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom? tom: thank you so much.

daniel yergin with us later this morning, looking at oil from 60,000 feet. we have people looking at the pipeline, those fancy wheels that they turn out in cushing. legendary ati was deutsche bank and joins us now with the energy information agency. he is the civil engineer from cornell. you had the best spreadsheets at deutsche bank. everybody read them worldwide. i want to know what the demand spreadsheet looks like right now. adam: good morning, tom, francine. side, let's talk about oil and natural gas, starting with gas. we have record high financial indicators but record high temperatures, too. we are burning up a lot of natural gas. that is beginning to slow down that climbing guess inventory, so we are generating a lot of electricity in america from natural gas. -- from that climbing gas inventory, so we are generating

a lot of electricity in america from natural gas. we are starting to see supply and demand rebalance, and by the end of this year, going into early 2017, i think oil markets on a global basis will be much more balanced. tom: let's look at the oil chart. 200-day moving average on brent. down we go, 29. up we go to the 200-day moving average. adam sieminski, tell me what the demand gloom crew gets wrong. there is a school out there that signals lower oil prices because of weak demand. where are they wrong? adam: where they are wrong as they are not looking at the supply side. the problem is not demand, the problem is too much supply. as supply tapers off, and we are starting to see that the saudis cannot go higher -- and the same is true for iran, iraq. in libya, things are not going well there. supply is not growing as much as it was a year ago, with demand

inching up on economic growth in the population. it will rebalance. tom: i would say it is the dynamics between a micro and a macro view, but also the upstream and downstream dynamics, particularly in the united states. francine: going back to what you were saying, adam, the market will rebalance, but when? eia is saying it will happen this year, but it is being pushed back a couple of months. adam: it is tying -- it is trying to -- you can look at the trends. the trends are taking this in the direction toward rebalance. on the consumer side, things look pretty good. gasoline is down around $2.20 a gallon this summer in the united states. that should help to continue to keep those miles driven going up. francine: do you expect some of

the oil exporting countries to stabilize the markets? this is, we understand, the wish of saudi arabia, for their pumping record. adam: most of the opec countries that understand global markets have been pretty clear. what is going to fix this is more demand and lower supply, and lower supply is more likely lesome from the impact of trilling than it is to come from political deals to cut profession. tom: this is absolutely fascinating and brings us back to, on an august friday night as kids we would play "risk" with her parents. adam talks brilliantly with his knowledge about hydrocarbons a bolt on of iran, iraq, libya. gideon: it is not so much that they are each individually stable, but there are enough

diverse sources of supply that you will not likely see de smet -- you will not likely seed dramatic disruptions in the market. i think the demand is going to be the big story. if it goes up -- tom: what do you see in asia? the ambiguity of indonesia, which i believe is an opec nation -- but they have their own battles, don't they? politicalo not see stability being a threat oil production our economies anywhere in the chinese periphery. tom: do you agree with gideon that it is about demand dynamics? david: i think he is exactly right. francine: we talk a lot about opec, but, adam sieminski, we have to focus on u.s. export and we saw a record in may. how much from now on is the u.s. going to export? adam: the u.s. export numbers are likely to just keep going up. modestly. there is plenty of supply.

consumer prices for oil products on a historical basis are fairly moderate as well. there really is not anything to prevent exports from continuing to go up there and we will see the same thing in natural gas with the streaming of these lng facilities. francine: will the u.s. ever cut , if of their exports overall there is an agreement between opec and non-opec that we want stable prices and everyone cuts back? will the u.s. be part of that agreement? adam: the idea that the united states would be part of an opec agreement is a pretty big stretch. that is something that has been talked about for a long time, but i think it is a political thing. it is certainly not a statistical question. tom: let's talk about the political thing. adam, does the united states have an energy policy? adam: well, tom, we do.

energy policy really derives from three other large policy choices. there is the economy, there is national security, and there is the environment. you put all three of those topics together, and energy policy generally tends to come at the center of all of those. so it is really age arrive thing. it is not where you start. derived thing. a it is not where you start. remember what russia did, but they destroyed supply and demand. mr. putin's russia -- they have a lot of bills to pay, don't they? adam, what do you see on russia? adam: tom, i thought you are asking one of your other guests. tom: no, they are speechless. adam: i was, too. on the russian side, the

saudis have emphasized several times now that they would consider the possibility of getting together to talk about how the market dynamics are working, but that iran and russia would be part of that conversation, and neither of those countries want to participate. francine: what are we left with? market expecting some kind of stability coming from this informal meeting in september that we will never get? adam: what we are left with is what we are talking about all along. the market itself is going to drive this. demand is going to go up because of the factors that lead toward demand growth, and supply has already responded. u.s. production is down more than one million barrels a day. tom: adam sieminski, thank you so much, with the eia. coming up, daniel yergin will join us from ihs. .e will speak to him about oil also, daniel yergin on the new commanding heights of the united

kingdom. this is bloomberg. ♪

francine: "bloomberg surveillance." i am francine lacqua in london. tom keene is in new york. let's talk corporate stories with the "bloomberg business flash" with taylor. taylor: a labor dispute in london has forced euro star to trips to paris and brussels over the next two days. planned another walkout against euro star in a month. the japan market new mutual fund has lost 16% since its assumption five years ago. assets have gone to about $17

million. that is your "bloomberg business flash." francine: we are talking about the impact of negative rates on the common person trying to save money. mario draghi has said negative rates are policy for the banks, not the people. but negative rates have arrived in the real world. the german cognitive savings bank says it will start charging retail customers told cash. let's get to jeff black in frankfurt. you were saying this for the moment -- one bank, a very small bank -- what is the danger if it becomes more spread out? that is what we have to see what is going on right now is a little institution down there at the foot of the bavarian out that has just broken a taboo. that is essentially what has happened. the economic impact of the decision this week is not great, but going forward, who knows?

others might follow suit. likely toare they follow suit, or is there anything mario draghi can do to stop them from following suit? jeff: economic growth would really solve this problem. the problem the banks are facing is exactly the same all over germany, all over the eurozone. it is even a global story. low returns in the banking business, and low prospects for economic growth. as that goes forward, measures like this become more likely. , thank you for your story. really, truly, the must-read across europe. david goldman is with us, who is expert on the dynamics and the physics of what that little bank in germany is feeling. david, i go back to the newtonian mechanics you and i talked about and this idea of

chronic. we are quarters and quarters into the effect of negative rates. we have chronic ideas about the chronic pain that that bank is facing. where does the chronic end? david: we have a real side and the monetary side. we have the worst productivity performance since the late 1970's. tom: as we saw in the u.s. isid: and the monetary side that we have very low real yields. as long as you have real productivity growth, you're not supposed to have much compensation to bond investors. the question in my view is, we do not get out of the cycle until we restore productivity growth. what will that take? it is usual innovation. but in this economy, this is the first time in the last eight years there has been zero net contribution to employment growth by startups. we have the least entrepreneurial economy in the u.s. since we have numbers for it. tom: within this -- we have

covered this yesterday brilliantly with ubs -- the idea of institutions grouping together to do coordinated fiscal response and monetary response. do you see a 2017 where that could actually hurt, whether it is japan, whether it is mario draghi in europe, or it is here? can we have a barbell strategy that leads to a good outcome? david: you need radical regulatory reform. just cutting tax rates in the old supply-side style is not enough in itself. the biggest problems are regulatory. take italy. banking system that should be resold and restarted. tom: it is not feasible. david: it is not feasible for political reasons. in the united states we need to reduce obstacles to entrepreneurial growth, which have accumulated like moss over the last eight years. we have to cut through a lot of

these obstacles. all of this causes political pain. francine: the problem with political pain -- and you see it in the u.s. and europe and everywhere underworld -- unless you get a cathartic moment, which i probably would not put itxit in that category -- cannot be reset. -- it the central banks will kill him eventually, but for the moment it makes them feel better. given economic support and keep asset prices high -- our sense is the fact that the long-term effects of this policy will kill us. at the back end of your new issue, you have the genius again on what dodd-frank did not fix, which is what david is talking about. gideon: liten talked about how dodd-frank --r did it go too far, should it be

repealed? he points out it did not touch runnable debt, and we need to fix that problem to head off future crises. the financial reform question is there. another thing we should talk about in 2017 is infrastructure spending. are you going to get policies, coordinated government policies, that could get you out of secular stagnation with new governments in power, who can invest and pull things forward? francine: i like that. we go back to secular stagnation. we have not really moved forward. tom: you and i are talking about the same stuff that we were talking about four years ago. francine: except now we have negative rates. it is not boring, it could be worrying. if you look at equities, they are at a record high. this is a picture for europe -- 9.169. crude, down aith

touch. but there is a lot of hope that the market stabilizes in september. this is bloomberg. ♪

tom: friday in august, foreign exchange. francine lacqua and tom keene.

thrilled you are with us. "bloomberg surveillance." a relentless yen strengthening over the last month, back over 102. maybe that is the hallmark for the day. francine? francine: coming up shortly is "bloomberg ." the set.ow on alix: we are following the three top stories on the day, the record highs in u.s. stocks despite the fact that analysts are looking for profit contraction of .8% in the third quarter. also following retail sales. breaking at 8:30, key economic data points. and following my love, which is oil, daniel yergin. talking about the future of oil. in particular, companies in the u.s. and how they can survive. on supply andng demand dynamics are we just spoke with adam sieminski, who

is very optimistic about the market clearing toward higher prices. alix: a lot of it depends on demand, how much demand can hold up. if we lose a little bit of that, it really makes supply coming down all the more important. tom: thanks so much. "bloomberg " later this morning. where do we go, gideon rose? why does every international look at "foreign affairs" magazine to start the month? a bridgeeresting, between europe and asia are it what have you learned about turkey in the last two weeks? gideon: it is one of the most distressing stories of the summer. erdogan's increasing , it did notnism work.

the backlash against the coup plotters has been vicious. erdogan has emerged stronger and more dominant and more authoritarian. turkey is a crucially important country for a variety of reasons , from strategy to economy to geopolitics, to social concern in the muslim world. the increasing authoritarianism of erdogan and his somewhat erratic handling of various policies poses a real question for u.s. policymakers of how much do you do, what happens when an ally becomes an authoritarian thug? tom: david, your thoughts on this? david: any long-term solutions in that region will require a kurdish state and other -- and is a ethnic states -- it former yugoslavia situation where you separate people out. to get us from a former yugoslavia situation, you have got to throw turkey under the bus.

tom: do we finally need a kurdish state? david: turkey gets second fight because they are going to lose some territory. the most important thing about u.s. policy is to figure out how to throw them under the bus without destabilizing nato. gideon: i am not so sure about that. it is unlikely we will throw turkey under the bus, given that it is a nato ally. francine: i up date that you want to talk from a u.s. point of view, but the eu has something at stake -- the refugee crisis. how should the eu deal with turkey in order not to jeopardize these migrants? david: at the end of the day, -- day,n: at the end of the the united states and the european union is going to make -- make itsth the peace with erdogan. i do not see them working to fundamentally destabilize turkey. david: i could not disagree

more. that is the tar baby that is stuck. the idea of the turkish alliance is the biggest thing standing in the way of a solution in the middle east. as long as we hang on to that, things will get worse. tom: it is good to have this debate. and that is the debate, as gideon says, of the summer. i had this conversation with christopher hitchens on northern turkey 12 years ago. we will continue this discussion with gideon rose and david goldman. what an interesting week. francine, have a great weekend. one go. francine is joining me on radio, bonus round for me. this is bloomberg. stay with us. ♪

>> rally like it's 1999. all three u.s. maker averages

set a record high for the first time since 1999. while european stocks away, there were losses. david: german growth eases. but italy's economy unexpectedly stalled as they prepare for that referendum. alix: and china's recent economic stabilization stumbles in july. retail saless and investment all slows. jonathan: welcome to "bloomberg ." alongside alix steel and david west on. the first time in 17 years, we get to say record, record, record. david: we remember what happened 15 years ago and it didn't work out so well. is this like that or not? alix: and the stock that led the s&p. ralph lauren, retail stocks doing really well this week. retail sales on friday at 8:30. key numbers for g.d.p.